Gross Domestic Product or GDP is the monetary value of all final goods and services produced within a country during a specific period. GDP is the most important measurement of a country to estimate the size of the economy and its growth rate. It is considered as a scorecard for a country’s overall economic health.
GDP is measured using three methods, using expenditures, production, and incomes. GDP acts as a crucial instrument for policymakers, investors, and businesses in strategic decision making. It is calculated quarterly and on an annual basis.
GDP is the aggregate of private and public consumption, government expenditure, investments, construction and infrastructure costs, foreign trade comprising national imports and exports. GDP is calculated by the following formula
GDP = C + G + I + NX
Where C = consumer spending;
G = government spending;
I = investments and business expenditure;
NX = net exports (exports-imports)
Trade Surplus means the total value of all goods and services exported by the country is more than the total value of goods and services imported by the country. Net exports are positive.
Trade Deficit is the exact opposite where country’s imports are more than the country’s exports. Trade surplus helps in increasing the GDP whereas the trade deficit has the opposite effect. Net exports are negative.
As GDP indicates the health and growth of an economy, businesses can use it as a guide for their business strategies. GDP has been widely adopted as the standard means for measuring national economies since the Bretton Woods conference in 1944.
Types of GDP measurements:
- Nominal GDP, which is the collection of raw data regarding finished goods and services produced within the country.
- Real GDP takes into account the effect of inflation(increase in the prices)along with the data of finished goods and services. It is also called inflation-corrected GDP.
- GDP per capita is measured by dividing a country’s total GDP by its population. It is possible to assess the standard of living in a country by this figure. Using GDP per capita alone is not accountable to measure how expensive it is to live in that country.
- Purchasing power parity (PPP) solves this problem. It compares how many goods and services an exchange-rate-adjusted unit of money (national currency) would be able to purchase in different countries, like comparing the price of an item, or basket of items, in different countries after adjusting for the exchange rate between them.
GDP of India :
Indian GDP is classified into three sectors:
Agriculture Sector:
Agriculture & Allied Sector includes milk and animal husbandry, forestry, aquaculture, fishing, etc. It is also known as the primary sector of the economy. Currently, it contributes to only 17% of Indian GDP in 2018-19. Despite low contribution to the GDP, the agriculture sector provides jobs and livelihood to around 53% population of India.Industry Sector
Industry Sector
Industry Sector includes Mining & Quarrying, Manufacturing (Registered & Unregistered), Gas, Electricity, Construction, and Water supply. It is also known as the secondary sector of the economy. Currently, it contributes around 29.6 % of Indian GDP in 2018-19.
Services Sector
Services Sector includes ‘Financial, Real Estate & Professional Services, Public Administration, Defense, and other services, Trade, Hotels, Transport, Communication, and Broadcasting Services. It is referred to as the tertiary sector of the economy. It is regarded as the backbone of the Indian economy, contributing around 54.3% of Indian GDP in 2018-19.
Some facts regarding the GDP and Economy of India in 2018-19:
Nominal GDP of India = 2.8 trillion dollars or ₹190.10 Lakh Crore
Real GDP of India = 140.78 Lakh Crore (at constant prices 2011-12)
GDP growth rate = 4.7% for the year 2019
GDP per capita = 2104 USD or ₹1,50,050/-
GDP from agriculture = ₹19,00,875 Crore
GDP from manufacturing = ₹23,29,430 Crore
GDP from public administration = ₹18,20,700 Crore
Government Spending = ₹16,40,980 Crore
Consumer Spending = ₹82,71,860 Crore
This is a brief introduction to GDP and the Indian Economy. In the upcoming articles, we shall discuss more on the GDP, Impact of COVID-19 on Indian GDP and Economy.
Understanding how the economy of our country works is very essential for every individual. We should have a basic idea of financial terms like GDP, Per-Capita, Stock Markets, Investments, etc. I aspire to provide quality information and financial education in a simple and easily comprehensible manner.
Disclaimer
I provide the information and my views on the website only to educate new investors, stock market enthusiasts, and the common public on equity or stock market investments. Please consult your financial adviser before making any investments in the stock market. In case of any queries, you can contact me via email ID or Contact Form.
